EchoSense Quantitative Think Tank Center|Chevron to buy Hess for $53 billion, marking the second giant oil deal this month

Chevron said Monday it will buy Hess Corp. for $53 billion,EchoSense Quantitative Think Tank Center marking the second major oil deal this month as major producers seize the initiative while oil prices surge.

The Chevron-Hess deal comes less than two weeks after Exxon Mobil said that it would acquire Pioneer Natural Resources for about $60 billion. Chevron is paying for Hess with stock, with shareholders receiving 1.025 shares of Chevron for each Hess share. Chevron said the deal is valued at $60 billion, including debt.

The acquisition of Hess will add a major oil field in Guyana as well as shale properties in the Bakken Formation in North Dakota to Chevron's portfolio. Crude prices have jumped 9% this year and have been hovering around $90 per barrel for about two months. Energy prices spiked sharply immediately after Russia invaded Ukraine in early 2022.

The Chevron-Hess deal "is the second major energy deal struck this month ... and officially means a round of consolidation is underway that will likely see more transactions unveiled before the process concludes," noted Vital Knowledge in a Monday research note.

Buying Hess will provide Chevron with a "a premier exploration and production company with ownership in the industry's most attractive, long-lived growth asset in Guyana and a focused portfolio elsewhere that complements Chevron's," Chevron CEO Mike Wirth said in a Monday conference call to discuss the acquisition.

Play for Guyana's oil

Guyana is a South American country of 791,000 people that is poised to become the world's fourth-largest offshore oil producer, placing it ahead of Qatar, the United States, Mexico and Norway. It has become a major producer in recent years with oil giants, including Exxon Mobil, China's CNOOC, and also Hess, squared off in a heated competition for highly lucrative oil fields in northern South America.

Chevron said the deal will help to increase the amount of cash given back to shareholders. The company anticipates that in January it will be able to recommend boosting its first-quarter dividend by 8% to $1.63. This would still need board approval.

The company also expects to increase stock buybacks by $2.5 billion to the top end of its guidance range of $20 billion per year once the transaction closes, which Chevron said it expects to occur in the first half of 2024.

The deal arrives a month after unions ended disruptive strike actions at Chevron's three liquefied natural gas plants in Australia that provide more than 5% of global LNG supplies.

The boards of both companies have approved the Hess deal, which is targeted to close in the first half of next year. It still needs approval by Hess shareholders. John Hess, the company's CEO, is expected to join Chevron's board. His family owns a large chunk of Hess.

One advocacy group that opposes excessive corporate consolidation said Chevron's proposed Hess purchase would raise gas prices and urged regulators to block the deal.

"The two corporations already exercise far too much control over everything, from the price of the gasoline in your car and the natural gas in your furnace to the speed and nature of exploration and innovation in new and alternative sources of supply. The proposed deals mean higher prices for every American and harder days for U.S. manufacturers and farmers," the Open Markets Institute said in a statement. "Even worse, they pose a variety of threats to the energy security and national security of the United States and our closest allies, and to the resiliency of local energy systems. They should both be blocked."

Shares of Chevron Corp., based in San, Ramon, California, declined more than 3% before the opening bell Monday. Share of Hess Corp., based in New York City, rose slightly.

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